Base Wage

and
Selecting
Salary
Employees
Systems
Chapter 13

Chapter 7

Learning Objectives
1. Define base wages and salaries and state the
objective of any base wage and salary system.
2. Define job evaluation.
3. Name and briefly discuss the four basic
conventional methods of job evaluation.
4. Explain the concepts of key jobs and compensable
factors.
5. Differentiate between subfactors and degrees.

13-2

Learning Objectives (cont.)

6.
7.
8.
9.

Explain the purpose of wage and salary surveys.

Discuss wage and salary curves.
Define pay grades and pay ranges.
Explain the concepts of broadbanding, skillbased pay, competency-based pay, marketbased pay, and total rewards.

13-3

Base Wage and Salaries

Base wages and salaries
Hourly, weekly, and monthly pay that employees
receive for their work.
make up the largest portion of an employees
total compensation

13-4

Specific Policy Issues in Developing and

Implementing a Base Wage and Salary Structure

Figure 13.1

13-5

Objective of the Base Wage

and Salary System
Primary objective
To establish a structure for equitable
compensation of employees, depending on their
jobs and level of performance in their jobs

13-6

Objective of the Base Wage

and Salary System
Establishing pay ranges involves two basic
phases:
Determining relative worth of different jobs to
the organization (ensuring internal equity)
Pricing the different jobs (ensuring external
equity)

13-7

Conventional Job Evaluation

Job evaluation
Systematic determination of value of each job in
relation to other jobs in the organization
Used for designing a pay structure

13-8

Conventional Job Evaluation

1. Gather information on the jobs being evaluated
2. Identify factor or factors to be used in
determining worth of different jobs to the
organization
3. Develop and implement a plan using chosen
factors for evaluating relative worth of different
jobs to the organization

13-9

Job Evaluation Methods

Job ranking
Job classification

Point comparison
Factor comparison
13-10

Potential Uses of Job Evaluations

Figure 13.2

13-11

Job Ranking Method

Job ranking method
Job evaluation method
that ranks jobs in order
of their difficulty from
simplest to most
complex.

13-12

Job Classification Method

Job classification method
method that determines the relative worth of a
job by comparing it to a predetermined scale of
classes or grades of jobs
Also called job grading
defined on basis of differences in duties,
responsibilities, skills, working conditions

13-13

Point Method
Point method
method in which a quantitative point scale is used
to evaluate jobs on a factor-by-factor basis.
simple to use and reasonably objective.

13-14

Selection of Key Jobs

Key jobs (benchmark) represent jobs that are
common throughout the industry or in general
locale under study
Content of key jobs should be commonly
understood
General idea is to select a limited number of key
jobs that are representative of entire pay
structure and the major kinds of work being
evaluated
13-15

Selection of Key Jobs

Selection of key jobs should adequately
represent
Span of responsibilities
Duties
Work requirements

13-16

Selecting Compensable Factors

Compensable factors
Characteristics of jobs that the organization
deems important to the extent that it is willing to
pay for them.

13-17

Selecting Compensable Factors

Job subfactor
Detailed breakdown of
a single compensable
factor of a job.

Degree statements
Written statements
used as a part of the
point method of job
evaluation to further
break down job
subfactors.

13-18

Possible Subfactors and Degrees for the

Compensable Factors of Responsibility, with
Sample Jobs

Table 13.1
13-19

Assigning Weights to Factors

Weights are assigned to each of the factors,
subfactors, and degrees to reflect their
relative importance
Weight assigned varies from job to job

13-20

Assigning Weights to Factors

Weights are assigned on basis of maximum
number of points for any job
Points are then assigned to compensable
factors, subfactors, and degrees based on
their relative importance

13-21

Sample Point Values

Table 13.2

13-22

Assigning Points to Specific Jobs

After point scale has been agreed on, point
values are derived for key jobs using the
following steps:
1. Examine the job descriptions
2. Determine degree statement that best describes
each subfactor for each compensable factor
3. Add total number of points

13-23

Possible Point Totals for Key

Banking Jobs

Table 13.3

13-24

Factor Comparison Method

Factor comparison
method
Job evaluation
technique that uses a
monetary scale for
evaluating jobs on a
factor-by-factor basis.

13-25

Factor Comparison Method

Each compensable factor is ranked according to its
importance in each key job
Done by assigning a rank to every key job on one
factor at a time rather than ranking one job at a time
on all factors
After each key job has been ranked on a factor-byfactor basis allocate wage or salary for each job
according to ranking of factors
Monetary scale is prepared for each compensable
factor
13-26

Factor-by-Factor Ranking of
Key Banking Jobs

Table 13.4

13-27

Sample Allocation Pay for

Key Banking Jobs

Table 13.5

13-28

Monetary Scale for Responsibility

Requirements in Banking Jobs

Table 13.6

13-29

Advantages and Disadvantages of

Different Job Evaluation Methods

Table 13.7

13-30

Pricing the Job

Labor market
conditions
Prevailing
wage rates
Living costs

13-31

Wage and Salary Surveys

Wage and salary survey
Survey of selected organizations within a
geographical area or industry designed to provide
a comparison of reliable information on policies,
practices, and methods of payment.

13-32

Wage and Salary Surveys

Advantages
Provides knowledge of market and ensure
external equity
Corrects employee misconceptions about certain
jobs
Has a positive impact on employee motivation

13-33

Wage and Salary Surveys

Wage or salary survey information can be
obtained in two basic ways:
Conducting your own survey
Purchasing or accessing a wage/salary survey
undertaken by another party

13-34

Conducting a Wage/Salary Survey

Personal
interviews

Telephone
interviews

Mailed
questionnaires

Internet
13-35

Conducting a Wage/Salary Survey

Personal interview
Most reliable and most expensive method

Mailed questionnaires
Probably used most frequently
Used only to survey jobs having uniform meaning
all over industry
Can be answered by someone not fully familiar
with wage structure
13-36

Conducting a Wage/Salary Survey

Telephone method
Quick but yields incomplete information
May be used to clarify responses to mailed
questionnaires

Internet
Inexpensive and quick
All companies are not reachable on Internet

13-37

Possible Topics in a Wage Survey

Figure 13.3

13-38

Purchasing or Accessing
Wage/Salary Surveys
Potential sources for relatively inexpensive
wage/salary surveys include
The Bureau of Labor Statistics of U.S. Department
of Labor
State and local governments
Trade associations
Chambers of commerce
Internet
13-39

Purchasing or Accessing
Wage/Salary Surveys
Surveys available on the Internet fall into two
broad categories:
Surveys conducted by federal government
Surveys conducted by private research
organizations, professional associations,
employees associations, and consulting firms

13-40

Sample of Web Sites for

Wage/Salary Survey Data

Figure 13.4

13-41

Guidelines to Avoid Problems

during Wage and Salary Surveys
1. Assess the participating companies for
comparability
2. Compare more than base wage or salary
3. Consider variations in job descriptions
4. Correlate survey data with adjustment
periods

13-42

Problems Encountered When Using

Salary Survey Data

Figure 13.5

13-43

Wage and Salary Curves

Wage and salary curves
Graphical depiction of the relationship between
the relative worth of jobs and their wage rates
can be used to indicate pay classes and ranges for
the jobs

13-44

Wage Curve Using the

Point Method

Figure 13.6
13-45

Wage and Salary Curves

Points of graph not
following general
trend indicate
Wage rate for that job
is too low or too high
The job has been
inaccurately evaluated

Green-circle jobs
Underpaid jobs

Red-circle jobs
Wages are overly high

13-46

Pay Grades and Ranges

Pay grades
Classes or grades of
jobs that for pay
purposes are grouped
on the basis of their
worth to an
organization.

Pay range
Range of permissible
pay, with a minimum
and a maximum, that
is assigned to a given
pay grade.

13-47

Pay Grades and Ranges

Two approaches for establishing pay grades and
ranges
1. To have a relatively large number of grades with
identical rates of pay for all jobs within each
grade
2. To have a small number of grades with a
relatively wide dollar range for each grade

13-48

Establishment of Pay Grades with

Ranges

Figure 13.7

13-49

Developing the Base Wage

Salary Structure

Figure 13.8
13-50

New Approaches to the

Base Wage/Salary Structure
Broadbanding
Skills-based pay
Competency-based pay

Market-based pay
Total rewards
13-51

Broadbanding
Broadbanding
Collapsing job clusters or tiers of positions into a
few wide bands to manage career growth and
deliver pay
bands usually have minimum and maximum
dollar amounts that overlap

13-52

Broadbanding
Advantages
Managers have more autonomy in setting pay
rates
Easier to move employees around
Encourages lateral moves or downgrading in flat
organizations
Helps improve communication teamwork

13-53

Skill-based Pay
Skill-based pay
systems
Systems that
compensate
employees for the
skills they bring to the
job.

13-54

Skill-Based Pay
Employees are paid for
Range of knowledge
Number of business-related skills mastered
Level of those skills or knowledge
Some combination of level and range

13-55

Skill-Based Pay Potential

Concerns
1.
2.
3.
4.

Increased labor costs

Topped-out employees
False expectations
Union agreements

13-56

Potential Benefits of a
Skill-Based Pay System

13-57

Competency-Based Pay
Competency-based pay system
Rewarding employees based on knowledge, skills,
and behaviors that result in performance.

13-58

Designing Competency-Based Pay

Figure 13.9
13-59

Market-Based Pay
Market-based pay
systems
Systems that focus on
external rather than
internal equity and
operate without
traditional pay ranges.

13-60

Total Rewards
Total Rewards
include everything the employee perceives to be
of value resulting from the employment
relationship.
basic idea is to consider all aspects of the work
experience

13-61

Total Rewards
Compensation,
Development
and career
opportunities

Performance
and recognition

Benefits

Worklife
balance
13-62